Monday, February 17, 2014

Bloomberg News East European Recovery Gathers Speed as Romanian GDP Surges 5.2%

By Agnes Lovasz
February 14, 2014

Eastern Europe’s economic growth picked up pace last quarter as a recovery strengthened in the euro area, which buys the bulk of the region’s locally made goods, and consumers spent more.

Romania’s expansion beat forecasts by the biggest margin as gross domestic product jumped 5.2 percent compared with the 2.8 percent predicted in a Bloomberg survey. On average, GDP growth in Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia quickened to 2.5 percent, the fastest expansion in 18 months, from 1.8 percent in the third quarter, according to London-based researcher Capital Economics Ltd.

Growth “will strengthen further this year,” William Jackson, emerging-markets economist at Capital, said today by e-mail. “We expect a gradual improvement in the euro zone, which should support the region’s export-led industrial sector. Meanwhile, domestic demand should continue to strengthen on the back of improvements in labor markets, looser credit conditions and an easing of fiscal austerity.”

Eastern Europe was the worst affected of all emerging markets by the global financial turmoil that began after Lehman Brothers Holdings Inc.’s demise because of banking and trade links with the continent’s crisis-stricken west. It’s these connections that are aiding the recovery now as unprecedented monetary-policy steps have lifted the euro region out of a record recession, kickstarting growth.

Leu Outperforms

The better-than-estimated performance prompted Capital to raise its GDP-growth forecasts for the Czech Republic and Hungary, both to 2.5 percent from 2 percent previously, and for Romania by 1 percentage point to 3 percent.

The Romanian leu is the third-best performer against the euro and the dollar in the last month among 24 developing-nation currencies tracked by Bloomberg. The Czech koruna and the Polish zloty are both in the top 10 for that period.

“Romania was the clear outperformer,” Mihai Patrulescu, a Bucharest-based economist at UniCredit Tiriac Bank SA, said today by e-mail.

The pace of growth in the European Union’s second-poorest member was the quickest since 2008 on higher orders for cars produced in the country by Renault SA (RNO) and Ford Motor Co.

Even so, maintaining the pace of expansion through domestic demand would require stimulus, Eugen Sinca a Bucharest-based economist at Erste Group Bank AG, said by e-mail.

‘Demand Gap’

“Growth was supported by an exceptional harvest and strong export growth,” Sinca said. “A repeat of this pattern in 2014 is hard to imagine and household consumption should accelerate more for sustainable economic growth.”

Tentative consumer confidence stretches across eastern Europe, according to Romanian Budget Minister Liviu Voinea, who said in a Feb. 11 post on the Financial Times’ website that the region is suffering from a “demand gap” because of crisis-triggered austerity measures. He encouraged economic policy makers to find ways to stimulate consumer spending.

“Emerging economies in the EU are facing a familiar set of problems; very low, even negative core inflation and a declining or negative current account balance,” Voinea said. “Even those countries which have very limited fiscal room for demand support should complement their fiscal consolidation packages with creative, inexpensive solutions to stimulate aggregate demand.”

Seven-Year High

Hungarian GDP rose 2.7 percent from a year earlier in the fourth quarter, more than the 2.5 percent median forecast in a Bloomberg survey. That’s the most in seven years, buoyed by an increase in car output.

Economic growth may exceed the government’s 2 percent forecast this year, helped by an improving international backdrop, strong exports and an increase in domestic consumption, Economy Minister Mihaly Varga told reporters in Budapest today.

Poland’s economy also accelerated for a third quarter, though less quickly than economists estimated, the only east European country among six that reported GDP today to trail forecasts.

The central bank’s relaxed monetary policy may help GDP grow at more than twice last year’s 1.6 percent in 2014, according to Cezary Chrapek, an economist at Citigroup Inc.’s Polish unit.

The Czech economy expanded at the fastest pace in more than six years in the fourth quarter after the central bank intervened to weaken the koruna, with GDP rising 1.6 percent from the previous three months after advancing 0.2 percent between July and September. The country’s two-week-old cabinet is seeking to increase spending to further help the rebound.

Bulgaria’s economy expanded 1 percent from the previous year, beating a 0.8 percent estimate in a Bloomberg survey.

Whether the recovery is going to last hinges on western Europe’s growth prospects, according to Matteo Napolitano, director of Fitch Ratings’ sovereign group in London.

“We shouldn’t forget that these countries have very strong commercial and financial links so their fortunes are tied to the euro zone,” he said last week in an interview.

To contact the reporter on this story: Agnes Lovasz in London at

To contact the editor responsible for this story: Balazs Penz at

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